21 July 2016 1QFY17 Results Update | Sector: Financials

Kotak Mahindra Bank

BSE SENSEX S&P CNX CMP: INR761 TP: INR866 (+14%) Buy 27,711 8,510

Bloomberg KMB IN Equity Shares (m) 911.6 M.Cap. (INR b) / (USD b) 1,298.1/20.552-Week Range (INR) 790 / 587 1, 6, 12 Rel. Per (%) -2/-2/712M Avg Val (INR M) 1035Free float (%) 66.3

Financials & Valuation (INR b)

Y/E Mar 2016E 2017E 2018E NII 69.0 80.8 97.2 OP 40.4 57.7 74.4 NP 20.9 33.1 43.5

34.6 49.1 62.3 4.1 4.4 4.5

Cons. NP NIM (%) Cons. EPS 18.9 26.8 34.0 EPSG r. (%) 41.9 26.9 Cons. BV. (INR) 182 207 240 Cons. RoE (%) 10.9 13.8 15.2 RoA (%) 1.1 1.6 1.8 Valuations P/E(X) (Cons.) 40.3 28.4 22.4 P/BV (X) 4.2 3.7 3.2 Div. Yield (%) 0.0 0.1 0.1 * Proforma merged (KMB+EIVBL )

In-line, healthy lending business performance; stable asset quality KMB’s standalone results: PAT grew 3x YoY to INR7.4b (in line with estimates).

Strong core operating performance (+26% YoY), healthy NII growth (20% YoY) onthe back of margin improvement (4.4%), controlled opex growth (adjusted +12%YoY), and stable asset quality (NSL at 1.3%) were the key highlights. Moderatewealth management fee was the key drag on fee income (+12% YoY) in thequarter.

Loans grew 17% YoY (+2% QoQ) led by robust growth in the corporate banking(+9% QoQ, 22% YoY) and CV (+7% QoQ, 42% YoY) segments. Managementexpects 20% growth for FY17.

Other highlights: a) SMA2 at 39bp; b) SA growth of 34% YoY; c) continuedtraction in CV loans (+14% QoQ) and business/personal loans (+9% QoQ).

Other businesses: a) Profitability at its capital market businesses improved toINR830m v/s INR680m a quarter ago, led by KMCC (INR230m v/s INR170m); b)K-Sec market share improved 10bp QoQ to 2.4%; c) overall average AUMincreased 8% QoQ (+18% YoY) – average domestic AUM increased 7% QoQ and31% YoY, of which equity AUM increased 7% QoQ (34% YoY).

Valuation and view: Merger with eIVBL places KMB in a sweet spot, with strong presence across geographies and products, and continued healthy capitalization (T1 of ~16%). The merged entity is India’s fourth largest private sector bank, with a loan book of INR1.2t and loan market share of 1.7%+. KMB’s premium multiples are likely to sustain, considering strong growth and operating leverage available across businesses, and a clean loan portfolio. Comfort on asset quality remains the highest, with no SDR/5:25, negligible SMA2 and OSRL (13bp). We cut standalone/consolidated earnings by 3-4% over FY17/18, led by lower revenue growth, and roll forward the target price. At our SOTP of INR866 (v/s INR863 previously), KMB will trade at 3.6x consolidated BV with cons. ROE of ~15%. Buy.

Motilal Oswal values your support in the Asiamoney Brokers Poll 2016 for

India Research, Sales and Trading team. We request your ballot.

Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526 Krishnan ASV (A.Krishnan@MotilalOswal.com);+91 22 6129 1571 / Dhaval Gada (Dhaval.Gada@MotilalOswal.com); +91 22 6129 1544

Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

21 July 2016 2

Kotak Mahindra Bank

Exhibit 1: Quarterly performance v/s our estimates and reasons for deviation (INR m) Kotak Bank (standalone) 1QFY17A 1QFY17E v/s Est. Comments

Net Interest Income 19,191 18,882 2 NIMs better than expected; loan growth lower than expected % Change (Q-o-Q) 20.1 18.1

Operating Profit 13,150 12,970 1 Largely in-line

% Change (Q-o-Q) 120.3 117.3

Net Profit 7,420 7,349 1 Largely in-line

% Change (Q-o-Q) 291.0 287.2

Other Businesses

Kotak Prime 1,200 1,300 -8 Profitability below estimate

Kotak Mah. Investments 400 400 0 In-line

Kotak Mah. Capital Co 230 50 360 Helped by several equity issuances and corporate actions

Kotak Securities 600 700 -14 Lower trading volumes QoQ partly offset by share increase

International subs 130 325 -60

Kotak Mah. AMC & Trustee Co. 190 225 -16

Kotak Investment Advisors 110 60

Kotak OM Life Insurance 710 650 9

Con. adj. and MI -240 -25

Consol. PAT 10,750 11,034 -3 In-line performance in lending business and mixed performance at capital market businesses led to the miss % Change (Q-o-Q) 108.0 113.5

Source: MOSL, Company

Lending businesses in line; mixed performance at capital market businesses Asset management business reported PAT of INR430m vs. INR520m in 4QFY16.

Domestic AMC business PAT decreased to INR190m v/s INR250m a quarter ago. Overall AUM increased 7% QoQ (+31% YoY); equity AUM also increased 7% QoQ (+34% YoY).

Capital market related business PAT was at INR8.3b v/s INR6.8b in 4QFY16 (INR7b in 1QFY16) driven by improvement in profitability in investment banking division. In the securities business, K-sec market share improved 10bp QoQ to 2.4% (v/s 2.7% in 1QFY16).

Life insurance profit increased 8% YoY to INR710m (-8% QoQ).

K-Sec market improved 10bp QoQ at 2.4% (-30bp

YoY)

21 July 2016 3

Kotak Mahindra Bank

Exhibit 2: KMPL: Overall loans grew by 13% YoY (-8% QoQ), similar to 4QFY16

Source: MOSL, Company

Exhibit 3: Debt funds now account for 41% of overall AUMs, similar to 1QFY16 (v/s 39% in 4QFY16)

Source: MOSL, Company

Exhibit 4: K-Sec: QoQ profitability ticked higher (INR b)

Source: MOSL, Company

Exhibit 5: K-Sec market share increased 10bp QoQ (%)

Source: MOSL, Company

Exhibit 6: Investment Banking: Earnings trend (INR m)

Source: MOSL, Company

Exhibit 7: Kotak AMC: Equity AUMs trending higher (INR b)

Source: MOSL, Company

89 98

97 106

112

118

122

128 13

1 13

1 13

1 13

3 13

4 13

9 14

2 14

7 15

1 15

8 16

4 16

7 16

8

26

27

26

28

30

34

38

42

49

46

38 47

51

49

48

50

47

43 54

56

54

1QFY

121H

FY12

9MFY

12FY

121Q

FY13

1HFY

139M

FY13

FY13

1QFY

141H

FY14

9MFY

14FY

141Q

FY15

1HFY

159M

FY15

FY15

1QFY

161H

FY16

9MFY

16FY

161Q

FY17

Auto Loans (INR b) Other Loans (INR b)

52 51 48 45 47 43 40 36 41 39 42 39 41

5 5 6 6 7 9 10 12 14 14 14 14 15 2 1 1 1 1 1 1 1 1 1 1 1 1

16 16 17 18 18 19 22 26 23 25 22 21 19 8 10 10 10 9 9 9 7 6 6 6 11 10 17 17 18 20 18 19 18 18 15 15 15 14 14

1QFY

14

1HFY

14

9MFY

14

FY14

1QFY

15

1HFY

15

9MFY

15

FY15

1QFY

16

1HFY

16

9MFY

16

FY16

1QFY

17

Debt Equity PMSOffshore Funds Alternate assets Insurance

1.5 1.5

1.3 1.8

1.3 1.

6 1.

5 1.6

1.5 1.

5 1.

7 1.6

2.2

2.2

2.2

2.9

2.5 2.7

2.3

2.3 2.4

0.2

0.3

0.2

0.5

0.2

0.4

0.4

0.1

0.3

0.4

0.5

0.4

0.7

0.7

0.6

1.0 0.

7 0.

8 0.

6 0.

5 0.

6

16 19 18

28 17

26 26

8

21 26

27 28 30

29 27 33

27 29 24 23

25

1QFY

122Q

FY12

3QFY

124Q

FY12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

17

Tot. Inc. PAT PATM (%)

2.7

2.9 2.9 2.9

2.5 2.5 2.6

2.5

2.2

2.4 2.3 2.3

2.9

2.7 2.8

2.9

2.7 2.7 2.7

2.3

2.4

1QFY

122Q

FY12

3QFY

124Q

FY12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

17

230

130 22

0 22

0 23

0 20

0 18

0 220

220

120

260

250

120

110

130

520

210 29

0 28

0 360

520

10

-40

40

50

60

40

20

40

40

-20

70

50

-40

-70

-60

300

30 70

60

170 23

0

1QFY

122Q

FY12

3QFY

124Q

FY12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

17

Tot. Inc. PAT

31 34 34 28 31 30 36 34 47 59 71 97

132 134 134 143 166

7 8 9 10 10 10 11

82 101 96 99 100 97 102 102 120 125 157

210 217

240 211 215 211

1QFY

13

1HFY

13

9MFY

13

FY13

1QFY

14

1HFY

14

9MFY

14

FY14

1QFY

15

1HFY

15

9MFY

15

FY15

1QFY

16

1HFY

16

9MFY

16

FY16

1QFY

17

Eq. AUM PMS AUM Offshore AUM

21 July 2016 4

Kotak Mahindra Bank

1QFY17 Conference call highlights Macro Related Seeing demand pick-up in construction and road sector; expect faster growth

rate in wholesale and corporate banking business Expect improvement in liquidity position Expect LCV growth to be better than last year; MHCV growth is likely to

moderate Guidance Credit growth 20%, (b) Credit costs below 50bp and steady state credit costs

would be 30-35bp, (c) NIM 4%+ Integration Related Technology and retail integration have been completed; 90%+ integration done Relocating 70-75 branches which are currently at similar locations (largely in

metro market) and expect 1,400 branch network by next calendar year Working on rationalizing / selling surplus residential apartments Currently, overall integration costs are less than INR2b BS Related Commercial vehicles, construction equipment, credit cards, personal loans are

some of the key areas of growth P& Related Half of non-fee income (INR1.7b) is trading gains during the quarter MF fees are flat on YoY basis – moved to amortizing trail fee income model Insurance fee income is 4x in 4Q v/s 1Q Asset Quality Related GNPA position for the bank is close to peak position One account amounting to INR1.5b was in SMA2 as of June 30 and has now

been fully recovered One restructured account has fully paid back Valuation and view Merger with eIVBL places KMB in a sweet spot with strong presence across

geographies, products and healthy capitalization (tier 1 of ~16%). The merged entity is the fourth largest private sector bank with a loan book of ~INR1.2t and market share of ~1.7%+ of loans. Further, KMB’s conglomerate structure places it in a very sweet position to ride the up-cycle across financial services.

Improvement in macro-economic environment coupled with healthy capitalization leaves KMB in a strong position to lever on growth opportunities in the economy. To leverage on its geographical expansion, the management is focusing on product penetration, with higher emphasis on Agriculture (will help in priority sector loans), small business loans (untapped opportunity; creating niche for itself) and mortgage loan. CV loans have bottomed out and likely to

Buy with SoTP of INR866 (3.6x FY18E Consolidated

BV)

21 July 2016 5

Kotak Mahindra Bank

show traction in ensuing quarters. We have cut estimates by 3-4% for standalone bank for FY17/18 led by lower than expected revenue growth.

Operating leverage is expected to kick in the expanded underutilized capacity.We are already seeing benefit of eIVBL network on SA growth (30%+ YoY).Higher refinancing opportunities, increased product offering on the combinednetwork and product penetration to eIVBL customers, will keep loan growthhealthy. On a lower base we are factoring loan CAGR of ~21% over FY16-19E.We expect PPoP (adjusted) CAGR of ~25% over FY16-19E, largely driven bystable margins and operating leverage. Large part of current year credit cost wasdriven by eIVBL portfolio, adjusted for provisions surprised us positively. Withjust 39bp of SMA2 accounts, No 5:25 and SDR on balance sheet comfort onasset quality remains the highest. Management has guided of credit cost of 45-50bp v/s 82bp in FY16. We expect adjusted PBT CAGR of ~38% over FY16-19E.

Post-merger with eIVBL , share of lending business in steady state profitability islikely to increase to ~83% - providing much needed stability to earnings. Capitallight nature of capital market and asset management businesses can provideupside to ROE if there is a strong improvement in business cycle. We expectconsolidated ROEs to improve to ~15% by FY18 on back strong improvement inbanking business ROAs to ~1.8%.

Backed by higher capitalization, diversified business loan book, strong riskmanagement and presence across financial services KMB historically traded at apremium multiples to peers despite relatively lower ROE. We are positive on thebusiness with the expected operating leverage from eIVBL. At our SOTP ofINR866, KMB will trade at 3.6x FY18 Consolidated BV (pro-forma merged basis).Buy.

Exhibit 8: Kotak Mahindra: SOTP Valuation (FY18-based) Value

(INR B) Value (USD

B) INR per share % To Total Rationale

Lending Business 1,416 21.0 772 89 Kotak Mahindra Bank 1,229 18.2 670 77 4x FY18E Core NW, ~1.5% RoA and ~14% Core RoE Kotak Prime (Car and other loans) 149 2.2 81 9 3x FY18E Net Worth, ~15% Core RoE Kotak Investment Company (LAS) 38 0.6 21 2 3x FY18E Net Worth Asset Management Business 72 1.1 39 5 Domestic Mutual Fund 41 0.6 22 3 5% of FY18E Avg. AUM of INR820b Alternative Assets 16 0.2 8 1 12% of FY18E AUM of INR136b Offshore Funds 14 0.2 9 1 5% of FY18E AUM of INR284b Capital Markets related Business 56 0.8 30 4 Kotak Securities 51 0.8 28 3 15x FY18E Earnings; Implied ~9x Core BV Kotak Investment Banking (KMCC) 4 0.1 2 0 1x FY18E Free Networth Kotak Life Insurance 46 0.7 25 3 Target Value 1,589 23.6 866 100 Implied 3.6x PBV; ROE of ~15% Current market cap. 1,396 20.7 761 Upside (%) 13.8 13.8 13.8

Source: MOSL, Company

21 July 2016 6

Kotak Mahindra Bank

Exhibit 9: We cut standalone earnings for FY17/18E by 3-4% led by lower income growth INR b Old Est. Revised Est. Change (%)

FY17 FY18 FY19 FY17 FY18 FY19 FY16 FY17 FY18 Net Interest Income 82.5 100.0 120.4 80.8 97.2 116.9 -2.0 -2.8 -3.0Other Income 34.5 42.7 51.1 32.7 41.4 51.8 -5.4 -3.0 1.3 Total Income 117.0 142.6 171.5 113.5 138.6 168.7 -3.0 -2.8 -1.7Operating Expenses 56.8 65.3 77.0 55.8 64.2 75.7 -1.7 -1.7 -1.7Operating Profits 60.3 77.3 94.5 57.7 74.4 92.9 -4.2 -3.8 -1.7Provisions 8.0 8.2 10.1 7.2 7.9 9.8 -10.0 -3.6 -3.1PBT 52.3 69.1 84.4 50.5 66.5 83.1 -3.3 -3.8 -1.5Tax 18.0 23.8 29.1 17.4 22.9 28.7 -3.3 -3.8 -1.5Standalone PAT 34.2 45.3 55.3 33.1 43.5 54.4 -3.3 -3.8 -1.5Consolidated PAT 50.8 64.9 78.9 49.1 62.3 76.6 -3.4 -4.0 -2.9Margins (%) 4.4 4.5 4.5 4.4 4.5 4.5 -0.7 0.4 0.7 SA RoA (%) 1.6 1.8 1.9 1.6 1.8 1.9 Core RoE (%) 13.4 15.4 16.2 13.0 14.9 16.1

Source: MOSL, Company

Exhibit 10: Lending business driving estimates lower INR b Old Est. Revised Est. Change (%)

FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 Kotak Mahindra Bank (Standalone) 34.2 45.3 55.3 33.1 43.5 54.4 -3.3 -3.8 -1.5Kotak Mahindra Prime 5.7 6.5 7.8 5.4 6.2 7.1 -4.6 -5.1 -9.4Kotak Mahindra Investments 2.0 2.4 2.9 2.0 2.4 2.9 Lending Business 41.9 54.2 66.0 40.5 52.1 64.5 -3.4 -3.9 -2.4International subsidiaries 1.6 2.0 2.7 0.8 1.0 1.3 Kotak Mahindra AMC & Trustee Co 0.9 1.2 1.4 0.9 1.2 1.4 Kotak Investment Advisors 0.3 0.3 0.4 0.5 0.5 0.6 Asset Management Business 2.8 3.6 4.5 2.2 2.7 3.3 -21 -23 -25Kotak Securities 3.1 3.8 4.7 2.8 3.4 4.2 Kotak Mahindra Capital Company 0.4 0.4 0.5 0.9 0.9 0.9 Capital Market Business 3.5 4.3 5.2 3.7 4.3 5.1 4.6 1.0 -1.2Consol. PAT excluding Kotak Life 48.2 62.0 75.7 46.3 59.1 72.9 -3.8 -4.7 -3.6Kotak OM Life Insurance 2.8 3.0 3.3 2.9 3.3 3.8 Consolidation Adjust. -0.1 -0.1 -0.1 -0.1 -0.1 -0.1Consol. PAT Including Kotak Life 50.8 64.9 78.9 49.1 62.3 76.6 -3.4 -4.0 -2.9

Source: MOSL, Company

21 July 2016 7

Kotak Mahindra Bank

Exhibit 11: KMB Group: Earnings Estimates KMB - Consolidated (INR M) FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E Lending Business 14,786 19,415 24,380 26,930 30,914 27,462 40,472 52,076 64,469 Kotak Mahindra Bank 11,367 15,414 19,737 21,603 24,776 20,898 33,097 43,545 54,445 Kotak Mahindra Prime (car finance) 3,179 3,849 4,307 4,907 5,077 5,025 5,424 6,172 7,075 Kotak Mah Investments (lending) 240 153 336 420 1,060 1,540 1,951 2,359 2,948 Capital Market 2,338 1,318 1,312 1,743 3,030 2,835 3,668 4,293 5,126 Kotak Securities 1,819 1,258 1,145 1,603 2,900 2,515 2,806 3,432 4,196 Kotak Investment Banking (KMCC) 519 59 167 140 130 320 862 862 931 Asset Management Business 1,009 405 401 660 480 1,820 2,181 2,731 3,329 Kotak AMC and trustee co 173 154 35 410 -290 720 943 1,207 1,449 International Subsidiaries (AMC and IB) 509 -110 60 70 520 1,050 788 1,024 1,331 KMIA (alternative assets management) 327 361 307 180 250 50 450 500 550 Sub Total 18,133 21,137 26,093 29,333 34,423 32,117 46,320 59,100 72,924 Growth YoY 22.5 16.6 23.4 12.4 17.4 -6.7 44.2 27.6 23.4 Om Kotak Life Ins (from FY06 Onwards) 1,014 2,030 1,900 2,390 2,290 2,510 2,887 3,319 3,817 Consolidated PAT (Incl Insurance) 19,147 23,167 27,993 31,723 36,713 34,627 49,206 62,420 76,742 Growth YoY 23.6 21.0 20.8 13.3 15.7 -5.7 42.1 26.9 22.9 Consolidation Adjustments 269 99 -179 30 -54 316 25 25 25 Reported PAT Per MI and AFF 18,878 23,068 28,172 31,693 36,767 34,311 49,181 62,395 76,717 Add: MI and Affiliates -25 -183 -158 -466 -196 278 -100 -100 -100 Cons Profit Post MI and Affiliates 18,853 22,885 28,014 31,228 36,571 34,589 49,081 62,295 76,617 Growth YoY 23.3 21.4 22.4 11.5 17.1 -5.4 41.9 26.9 23.0

*Including ING Vysya Bank Source: MOSL, Company

Exhibit 12: Kotak Group Earnings Snapshot (% of total) % to total profit FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E Lending Business 78 85 87 86 85 79 82 84 84 Kotak Mahindra Bank 60 67 70 69 68 60 67 70 71 Kotak Mahindra Prime (car finance) 17 17 15 16 14 15 11 10 9 Kotak Mah Investments (lending) 1 1 1 1 3 4 4 4 4 Capital Market 12 6 5 6 8 8 7 7 7 Kotak Securities 10 5 4 5 8 7 6 6 5 Kotak Investment banking (KMCC) 3 0 1 0 0 1 2 1 1 Asset Management Business 5 2 1 2 1 5 4 4 4 Kotak AMC and trustee co 1 1 0 1 -1 2 2 2 2 International Subsidiaries (AMC and IB) 3 0 0 0 1 3 2 2 2 KMIA (alternative assets management) 2 2 1 1 1 0 1 1 1 Sub Total 96 92 93 94 94 93 94 95 95 Om Kotak Life Ins 5 9 7 8 6 7 6 5 5 Consolidated PAT (Incl Insurance) 102 101 100 102 100 100 100 100 100 Less: Cons. Adj, MI and Affiliates etc. 2 1 0 2 0 0 0 0 0 Consolidated PAT (Post Adjustments) 100 100 100 100 100 100 100 100 100

*Including ING Vysya Bank Source: MOSL, Company

21 July 2016 8

Kotak Mahindra Bank

Exhibit 13: Financials: Valuation metrics

66 Rating CMP Mcap EPS (INR) P/E (x) BV (INR) P/BV (x) RoA (%) RoE (%)

(INR) (USDb) FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 ICICIBC* Buy 262 23.1 18.1 20.8 10.7 8.0 145 159 1.25 1.05 1.19 1.22 11.1 11.8 HDFCB Buy 1,228 47.1 58.4 70.3 21.0 17.5 332 386 3.70 3.18 1.89 1.86 18.9 19.6 AXSB Buy 538 19.4 35.0 41.0 15.4 13.1 251 285 2.14 1.89 1.45 1.43 14.7 15.2 KMB* Buy 761 21.1 26.1 33.7 29.1 22.6 207 239 3.68 3.18 1.50 1.70 14.2 15.4 YES Buy 1,155 7.4 78.9 97.3 14.6 11.9 391 468 2.96 2.47 1.81 1.83 22.0 22.7 IIB Buy 1,136 10.2 50.5 63.8 22.5 17.8 334 389 3.40 2.92 1.92 1.96 16.2 17.6 IDFC Bk Buy 50 2.6 3.0 4.1 16.9 12.2 42 46 1.19 1.10 1.09 1.12 7.2 9.4 FB Neutral 61 1.6 3.7 4.5 16.3 13.6 50 53 1.22 1.14 0.64 0.65 7.7 8.7 DCBB Buy 100 0.4 7.4 8.6 13.5 11.6 69 78 1.45 1.29 0.98 0.93 11.3 11.7 JKBK Neutral 68 0.5 17.6 21.2 3.8 3.2 146 162 0.46 0.42 0.99 1.05 12.7 13.7 SIB Buy 21 0.4 3.1 3.7 7.0 5.8 30 33 0.72 0.66 0.61 0.64 10.7 11.7 Private Aggregate 133.9 19.1 16.0 2.59 2.29 SBIN (cons)* Buy 226 26.5 19.3 24.3 11.7 9.3 240 259 1.00 0.92 0.49 0.54 8.3 9.7 PNB Neutral 124 3.7 15.7 19.9 7.9 6.2 200 220 0.62 0.56 0.44 0.50 8.2 9.5 BOI Neutral 107 1.4 9.3 23.5 11.6 4.6 337 356 0.32 0.30 0.12 0.27 2.8 6.8 BOB Buy 152 5.3 14.7 18.7 10.4 8.2 159 173 0.96 0.88 0.48 0.54 9.6 11.2 CBK Neutral 252 2.1 33.1 42.4 7.6 5.9 505 537 0.50 0.47 0.31 0.36 6.7 8.1 UNBK Buy 131 1.4 26.8 36.7 4.9 3.6 318 351 0.41 0.37 0.43 0.53 8.7 11.0 OBC Neutral 112 0.5 22.1 27.9 5.1 4.0 473 494 0.24 0.23 0.28 0.32 4.8 5.8 INBK UR 148 1.1 22.2 29.1 6.7 5.1 298 320 0.50 0.46 0.49 0.56 7.7 9.4 ANDB Buy 58 1.8 2.9 8.2 19.8 7.1 129 136 0.45 0.43 0.15 0.39 2.3 6.2 Public Aggregate 43.8 11.5 8.5 0.75 0.70 Banks Aggregate 177.6 16.5 13.2 1.61 1.47 HDFC* Buy 1,332 31.9 40.1 46.3 23.0 18.4 194 221 4.39 3.53 1.89 2.10 20.0 22.1 LICHF Buy 503 3.8 39.5 47.3 12.7 10.6 213 251 2.36 2.00 1.49 1.51 20.1 20.9 IHFL Buy 714 4.6 68.2 84.0 10.5 8.5 280 315 2.55 2.27 3.84 3.78 23.4 28.2 GRHF Buy 291 1.6 8.3 10.7 35.0 27.3 28 35 10.25 8.24 2.33 2.34 32.4 33.5 REPCO Buy 835 0.8 30.3 39.0 27.6 21.4 179 214 4.65 3.90 2.14 2.17 18.2 19.8 DEWH Buy 218 1.0 29.4 36.2 7.4 6.0 194 221 1.12 0.99 1.18 1.20 16.1 17.4 Housing Finance 43.6 20.6 17.4 4.16 3.67 RECL Neutral 199 3.0 59.2 68.6 3.4 2.9 336 389 0.59 0.51 2.63 2.55 18.9 18.9 POWF Neutral 207 4.1 46.8 49.1 4.4 4.2 72 107 2.89 1.94 2.69 2.35 85.1 55.0 Infra Finance 7.1 3.9 3.5 1.11 0.90 SHTF Buy 1,168 4.0 75.5 94.2 15.5 12.4 507 581 2.30 2.01 2.17 2.27 15.7 17.1 MMFS Buy 317 2.7 15.5 18.8 20.4 16.9 119 133 2.66 2.39 2.14 2.26 13.7 15.0 BAF Buy 8,710 7.1 308.1 380.8 28.3 22.9 1,631 1,956 5.34 4.45 3.14 3.02 20.6 21.2 MUTH Buy 275 1.7 24.9 32.0 11.0 8.6 157 177 1.75 1.55 3.29 3.47 16.7 19.2 SKSM Buy 764 1.5 46.2 47.9 16.5 16.0 153 201 4.99 3.80 6.28 4.69 35.5 27.1 Asset Finance 16.9 19.2 15.7 3.08 2.78 NBFC Aggregate 67.7 14.0 12.1 3.02 2.62 Financials 245.3 15.7 12.9 1.85 1.67 *Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in subsidiaries

21 July 2016 9

Kotak Mahindra Bank

Financials and valuations (KMB+EIVBL - Proforma-merged)

Income Statement (INR Million) Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E Interest Income 68,838 100,370 129,041 139,722 155,677 163,842 181,777 208,488 248,559 Interest Expense 37,798 63,162 81,598 84,991 93,876 94,838 100,943 111,286 131,690 Net Interest Income 31,040 37,208 47,443 54,731 61,800 69,004 80,834 97,202 116,869 Change (%) 15.5 19.9 27.5 15.4 12.9 11.7 17.1 20.2 20.2 Non Interest Income 14,355 16,471 18,875 22,668 29,119 26,122 32,658 41,416 51,787 Net Income 45,395 53,679 66,318 77,399 90,919 95,126 113,492 138,617 168,656 Change (%) 15.3 18.2 23.5 16.7 17.5 4.6 19.3 22.1 21.7 Operating Expenses 25,793 29,450 34,825 40,353 48,711 54,715 55,788 64,187 75,741 Pre Provision Profits 19,602 24,229 31,493 37,046 42,208 40,411 57,704 74,430 92,915 Change (%) 1.1 23.6 30.0 17.6 13.9 -4.3 42.8 29.0 24.8 Provisions (excl tax) 2,887 1,688 2,758 4,545 4,723 9,174 7,175 7,949 9,793 PBT 16,715 22,541 28,735 32,501 37,486 31,237 50,529 66,481 83,122 Tax 5,347 7,127 8,998 10,898 12,710 10,339 17,433 22,936 28,677 Tax Rate (%) 32.0 31.6 31.3 33.5 33.9 33.1 34.5 34.5 34.5 PAT 11,367 15,414 19,737 21,603 24,776 20,898 33,097 43,545 54,445 Change (%) 41.5 35.6 28.0 9.5 14.7 -15.7 58.4 31.6 25.0 Consolidated PAT (incl VYSB) 18,853 22,885 28,014 31,228 36,571 34,589 49,081 62,295 76,617 Change (%) 23.3 21.4 22.4 11.5 17.1 -5.4 41.9 26.9 23.0

Balance Sheet (INR Million) Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E Net Worth 98,261 123,309 144,646 197,401 220,521 239,625 270,793 311,802 363,075 Deposits 594,552 737,319 923,628 1,002,891 1,240,148 1,386,430 1,594,395 1,881,386 2,295,291 Change (%) 19.5 24.0 25.3 8.6 23.7 11.8 15.0 18.0 22.0 of which CASA Dep 192,491 244,498 283,534 325,865 412,995 527,764 644,958 788,500 964,389 Change (%) 21.1 27.0 16.0 14.9 26.7 27.8 22.2 22.3 22.3 Borrowings 158,709 222,920 269,219 225,641 205,411 209,753 230,729 276,874 318,406 Other Liabilities & Prov. 47,124 43,125 47,809 54,053 67,119 86,790 104,148 124,977 149,972 Total Liabilities 898,646 1,126,673 1,385,301 1,479,986 1,733,198 1,922,598 2,200,064 2,595,039 3,126,744 Current Assets 49,924 58,651 65,226 118,060 97,457 108,797 131,933 147,699 190,312 Investments 281,797 342,823 471,517 422,053 513,313 512,602 538,232 592,056 651,261 Change (%) 22.6 21.7 37.5 -10.5 21.6 -0.1 5.0 10.0 10.0 Loans 529,314 678,159 802,410 888,565 1,069,718 1,186,653 1,400,251 1,708,306 2,118,299 Change (%) 34.7 28.1 18.3 10.7 20.4 10.9 18.0 22.0 24.0 Fixed Assets 9,284 9,508 9,640 16,315 16,204 15,516 15,764 16,012 16,261 Other Assets 28,326 37,532 36,508 34,994 36,507 99,030 113,884 130,967 150,612 Total Assets 898,646 1,126,673 1,385,301 1,479,986 1,733,198 1,922,598 2,200,064 2,595,039 3,126,744 Asset Quality (%) GNPA (INR m) 11,567 11,771 13,283 17,037 22,884 28,381 31,862 33,120 36,955 NNPA (INR m) 3,029 2,899 3,205 6,756 10,722 12,620 14,338 14,904 16,630 GNPA Ratio 2.15 1.71 1.63 1.90 2.12 2.36 2.25 1.92 1.73 NNPA Ratio 0.57 0.43 0.40 0.76 1.00 1.06 1.02 0.87 0.79 PCR (Excl Tech. write off) 73.8 75.4 75.9 60.3 53.1 55.5 55.0 55.0 55.0 E: MOSL Estimates

21 July 2016 10

Kotak Mahindra Bank

Financials and valuations (KMB+EIVBL - Proforma-merged)

Ratios Y/E March 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E Spreads Analysis (%)

Avg. Yield-Earning Assets 9.5 10.8 11.0 10.5 10.5 9.8 9.8 9.7 9.6 Avg. Yield on loans 11.4 12.8 13.1 12.4 12.0 11.1 10.8 10.5 10.4 Avg. Yield on Investments 6.3 7.3 7.8 7.7 7.7 6.7 7.0 6.8 6.8 Avg. Cost-Int. Bear. Liab. 5.6 7.4 7.6 7.0 7.0 6.2 5.9 5.6 5.5 Avg. Cost of Deposits 5.2 7.0 7.1 6.8 6.8 6.0 5.6 5.3 5.3 Interest Spread 3.9 3.4 3.5 3.5 3.4 3.5 3.9 4.1 4.1 Net Interest Margin 4.3 4.0 4.1 4.1 4.2 4.1 4.4 4.5 4.5

Profitability Ratios (%) RoE 13.5 14.0 14.8 12.7 11.9 9.1 13.0 14.9 16.1 RoA 1.4 1.5 1.6 1.5 1.5 1.1 1.6 1.8 1.9 Consolidated ROE 15.5 14.8 15.0 13.4 13.0 10.9 13.8 15.2 16.1 Other Ratios (%)

Int. Expense/Int.Income 54.9 62.9 63.2 60.8 60.3 57.9 55.5 53.4 53.0 Non Int. Inc./Net Income 31.6 30.7 28.5 29.3 32.0 27.5 28.8 29.9 30.7 Cost/Income 56.8 54.9 52.5 52.1 53.6 57.5 49.2 46.3 44.9 Empl. Cost/Op. Exps. 53.9 51.7 52.4 51.4 48.9 51.5 49.1 47.8 47.8 Loans/Deposit Ratio 89.0 92.0 86.9 88.6 86.3 85.6 87.8 90.8 92.3 CASA Ratio 32.4 33.2 30.7 32.5 33.3 38.1 40.5 41.9 42.0 Investment/Deposit Ratio 47.4 46.5 51.1 42.1 41.4 37.0 33.8 31.5 28.4

Valuation Standalone Book Value (INR) 48.6 56.1 65.8 82.2 120.4 130.6 147.6 170.0 197.9 Change (%) 8.5 13.0 15.1 16.4 Consolidated BV (INR) 76.9 89.6 104.6 126.3 164.5 181.6 207.4 240.0 280.1 Change (%)

10.4 14.2 15.7 16.7

Price-BV (x) 4.6 4.2 3.7 3.2 2.7 Consolidated EPS (INR) 10.6 12.4 14.7 16.0 20.1 18.9 26.8 34.0 41.8 Change (%)

-6.0 41.9 26.9 23.0

Price-Earnings (x) 37.9 40.3 28.4 22.4 18.2 Dividend Per Share (INR) 0.1 0.2 0.2 0.2 0.4 0.5 0.9 1.2 1.5 Dividend Yield (%) 0.0 0.0 0.1 0.1 0.1 E: MOSL Estimates

21 July 2016 11

Kotak Mahindra Bank

Corporate profile: Kotak Mahindra Bank

Exhibit 14: Shareholding pattern (%) Mar-16 Dec-15 Mar-15

Promoter 33.7 33.7 40.0

DII 4.7 4.6 1.9

FII 35.9 34.6 37.0

Others 25.7 27.1 21.1

Note: FII Includes depository receipts

Exhibit 15: Top holders Holder Name % Holding

ING MAURITIUS INVESTMENT I 6.4 EUROPACIFIC GROWTH FUND 5.0 CANADA PENSION PLAN INVESTMENT BOARD

4.9

ANURADHA MAHINDRA 2.7 SUMITOMO MITSUI BANKING CORPORATION 1.8

Exhibit 16: Top management

Name Designation

Uday Kotak Executive Vice Chairman & MD

C Jayaram Joint Managing Director

Dipak Gupta Joint Managing Director

Jaimin Bhatt CFO

Shanti Ekambaram CPresident Corporate and IB

Exhibit 17: Directors Name Name

Shankar Acharya* Prakash Apte*

C Jayaram N P Sarda

Dipak Gupta Uday Kotak

Asim Ghosh* S Mahendra Dev*

Amit Desai* Farida Khambata

*Independent

Exhibit 18: Auditors

Name Type

S B Billimoria & Co Statutory

Exhibit 19: MOSL forecast v/s consensus EPS

(INR) MOSL

forecast Consensus

forecast Variation

(%)

FY17 26.8 25.3 5.8

FY18 34.0 32.2 5.5

Company description Kotak Mahindra Bank (KMB) is part of the larger Kotak Mahindra Group led by Mr. Uday Kotak, Founder and Managing Director of the Bank. The group has a strong presence across financial services value chain. Notably, KMB is the only bank in India’s corporate history to be converted into a bank from a non-banking finance company. The bank has pan-India presence with 1,333 branches and 2,032 ATMs as on March 31, 2016. In 2015, KMB merged with EIVBL in an all-stock deal.

Exhibit 10: Sensex rebased

Our recent reports on Kotak Mahindra Bank

Our recent reports on Financial sector

Our recent reports on other Financial companies

PRODUCT GALLERY

21 July 2016 13

Kotak Mahindra Bank

N O T E S

21 July 2016 14

Kotak Mahindra Bank

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